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A stock price is Rs.30. An investor buys one European call option contract on the stock with a strike price of Rs.30 and sells one
A stock price is Rs.30. An investor buys one European call option contract on the stock with a strike price of Rs.30 and sells one European put option contract on the stock with a strike price of Rs.30. The market prices of the options are Rs.1 and Rs.3, respectively. The options have the same maturity date and each option is on one share. Assume the interest rate is flat at 0% pa. (a) Compute the investors profit at ST = 0, 16, 26, 28, 30, 40 and 56. (b) Is this position mimicking a short or a long forward position? Explain.
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